On 31-Dec-14 we made the following entry:
Interest Expense $27.36
Discount on Bond Payable ($2.83*5/6) $2.36
Interest Payable ($30*5/6) $25.00
This transaction was made when the share price was $6, but James had not elected to receive common stock as opposed to his usual $25.00 cash coupon. Now that Kat’s common stock price has jumped above $6 per share, James now elects to receive 5 shares of Kat common stock. This does not change the fact that there is a discount to amortize (i.e. the discount must be present as $960 was paid for the face value of $1000) Therefore we must continue to credit discount on bond payable according to the amortization table provided (1/6 now). Now ...view middle of the document...
In other words, a liability is still increasing (discount on bond payable) and an expense is still increasing in the same direction (interest expense).
Under the new standard “record as losses any additional payment value made based on subsequent market-related changes.” From my understanding of this new standard I would now incur losses instead of expensing the cost of issuing common stock (additional payment value is $5). The change was implemented prior to the payment date, however the change would not effect prior periods (it states it is a going forward measure), and no journal entries take place between 15-Jul-15 and 31-Jul-15. Therefore, the change will be implemented on 31-Jul-15 as implementing the change prior to that point would also be immaterial (reclassifying additional payments as losses that are dollars in single digits).
Interest Expense $27.92
Loss on Bond Security $5.00
Discount on Bond Payable $2.92
Common Stock (5*$6) $30
Therefore the financial statements...